Though Internet banking software providers beat Wall Street estimates with their third-quarter results, analysts say they remain concerned about the vendors especially those whose revenues come mostly from licensing.
Corillian Corp. of Portland, Ore., and Online Resources Corp. of McLean, Va., both announced earnings last Wednesday, and Digital Insight Corp. of Calabasas, Calif., announced its results on Thursday.
Perhaps the most nagging issue investors have with Corillian is that many believe targeting banks is not a great business, wrote Richard Zandi, a Deutsche Banc Alex. Brown analyst, in a research note Thursday.
Corillian sold fewer licenses in the third quarter than in the second, said David Easthope, an analyst at Friedman Billings Ramsey & Co. Were getting a sense that the domestic market is really tough to sell into right now.
On top of that, large institutions seemed to have made up their mind on what theyre going to do and who theyve selected, Mr. Easthope said.
Corillian reported a third-quarter net loss of $6.3 million, compared with $7.7 million in 2000 and a pro forma net loss of 10 cents per share, beating analysts consensus estimate of 14 cents, according to Thomson Financial/First Call. Corillian also reported revenue of $15 million, a 58% increase from a year earlier.
During the companys earnings conference call Corillian chief executive, Ted Spooner, also announced that it had cut its work force by 20%.
The layoffs, he said, would produce annual cost savings of about $10 million, the full benefit of which we expect to realize beginning in the first quarter.
In response to the companys projection of 30% to 40% growth next year, which is less than analysts had expected, Mr. Zandi reduced his 2002 revenue estimate to $75 million, from $102 million.
Mr. Easthope said he wondered whether Corillian would grow organically for the long term. They have a backlog of customers, which is promising, but theyre going to need to go out and sell additional products to the existing client base, he said.
To be consistently profitable, Mr. Easthope said, Corillian must hit its numbers for 2002 and keep its quarterly revenues in the $20 million range.
For Online Resources and Digital Insight Internet banking providers with recurring-revenue models based on the number of users obtained through client banks and credit unions the path to profitability may be less rocky.
Theyre in good shape to weather economic conditions because theyre getting paid on a per-month, per-transaction basis, Mr. Easthope said.
Corillian shares closed at $2.57 Friday, up 1.58%; Online Resources at $2.19, up 34.36%; and Digital Insight at $16.81, up 36.67%.
This is the 24th consecutive quarter of year-over-year revenue growth of at least 30%, Matthew P. Lawlor, Online Resources chairman and chief executive, said in the companys earnings conference call. Online Resources announced revenues of $6.4 million for the quarter, an increase of 52% from a year earlier.
This is also the sixth consecutive quarter of operating-loss improvement, Mr. Lawlor said. Online Resources reported a quarterly net loss of $3.1 million, down from $4.4 million a year earlier, and an operating loss of 18 cents a share, beating the First Call consensus by 3 cents.
Billable and total users increased by 60% and 63%, respectively, from a year earlier and about 12% from the second quarter.
Despite Mr. Lawlors stated concerns about losing existing bank customers through mergers and consolidation next year, Online Resources said it expects to break even by the end of next June and to show an operating profit of 4 to 8 cents per share for 2002. Digital Insight reported quarterly revenue of $24.5 million, an increase of 49% from a year earlier; a net loss of $9.9 million, compared with $14.3 million; and a pro forma net loss of 2 cents a share, beating the First Call consensus by 2 cents.
For Digital Insight, no one customer accounts for a lot of its revenue. They have fairly good visibility on what numbers are going to be from quarter to quarter, Mr. Easthope said.
The company forecast fourth-quarter revenue of $26 million to $26.5 million and 40% top-line growth in 2002.
If and when the economy rebounds, Mr. Easthope said, Digital Insight may face questions as to where is the penetration of existing clients going to go. Are we going to see more people adopt Internet banking? If we do, that will really improve the numbers.
